Investing in Obesity - Coverage, Access, & Funding

By Renee Hurley with Commentary by Evan Seigerman

Obesity Innovator_Investing in Obesity_April 2025.pdf

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ACCESS & COVERAGE

An estimated 40,000 deaths per year in the United States could be prevented by expanding access to GLP-1 anti obesity medications (AOMs).1 Yet, many employer, private and government health plans do not provide coverage of these drugs for weight loss or if they do, restricted criteria, such as requiring another condition (such as diabetes), meeting with a psychiatrist, or enrolling in a weight-loss program, further limit access and expand coverage gaps.

With GLP-1 drugs ranging between $350 and $499 monthly in out-of-pocket costs for uninsured or underinsured patients, these medications are still out of reach for many despite new manufacturer direct-to consumer programs, patient assistance programs, and other cost-lowering efforts.

Coverage gaps also expand health inequities and care discrepancies in certain patient populations, socioeconomic groups, and regions. For example. In the U.S, states that have higher obesity and diabetes rates coupled with lower median household income, such as Arkansas, West Virginia, Mississippi and Oklahoma, serve to be most impacted by expanding coverage, and as result “could lead to the largest per capita reductions in mortality”.1

In late 2024, then U.S. President Biden proposed a rule to allow Medicare and to require Medicaid to cover drugs intended for weight loss for obese patients.2 Currently, only 13 states cover GLP1-s for obesity.3

Unfortunately, the U.S. administration change derailed this proposal. In early April, President Trump announced the government would not move forward with these policies. If they had been enacted, they potentially could have applied more pressure to private and employer-based health plans to expand their coverage. According to KFF analysis, most companies with more than 200 employees do not currently cover GLP-1 drugs for weight loss – only 18% reportedly do.4

For those patients who do have access to GLP-1 drugs, high cost and gastrointestinal side effects appear to be the two biggest challenges to patient persistence. DNB /// Back Bay reported, that according to a survey of physicians, 33% of patients discontinue these medications after just six months – even though these are now considered life-time disease-modifying medications. Of the reasons for discontinuation, 54% reported lack of or limited coverage as the number one reason.5

While GLP-1s continue to lead the headlines around weight loss treatments, lack of coverage and access also impact other effective and complementary weight loss therapies, including bariatric procedures. In fact, only 1% of qualified patients undergo bariatric surgery, with insurance denial being the primary reason patients don’t have bariatric procedures.6  Yet, the reduction in overall patient healthcare costs are estimated at 29% within five years of bariatric surgery.7

SOCIETAL IMPACT

Globally, obesity prevalence continues to rise despite decades of increased focus on lifestyle changes and public health policies. With that, the impact on society is reflected in growing healthcare resource utilization and economic burden as well as in lower quality of life and increasing mortality rates. When considering societal impact, critical indirect economic costs are also related to lower workplace productivity due to disability, reduced personal income, reduced workforce participation, and premature deaths.

Countries across the globe are working towards estimating the overall cost of obesity to help better quantify the potential economic benefits of enabling greater access to AOMs. For example, estimates for the cost of inaction and societal burden in treating obesity in Canada is $21 billion8, $116.85 billion (US) in the Kingdom of Saudi Arabia9, and £98 billion in the United Kingdom annually10.

If current trends continue by 2060, the economic impacts from overweight and obesity (OAO) are projected to rise from 1% in 2020 to more than 3% of Gross Domestic Product (GDP) globally. Within the same time frame, reducing OAO prevalence by just 5% may equate to annual cost reductions of $2.2 trillion globally.11

In the U.S., some estimates of Medicare AOM covered costs (assuming the changes were to take effect in 2026) range from $250 billion to $1 trillion.12 However, a recent study by the Leonard D. Schaeffer Center for Health Policy & Economics, notes that these estimates don’t include price rebates and ignore the medical cost-offsets of treating obesity, explaining that “prior research suggests that Medicare coverage of weight-loss therapies could save federal taxpayers as much as $245 billion in the first 10 years in reduced medical spending.”13 

The paper also addresses the huge potential if access were expanded to additional subgroups, such as younger patients, low and medium risk diabetes groups, and those in the moderate BMI categories. Expanded access to these groups and all AOM treatment eligible patients could not only reduce or delay obesity-related comorbidities, such as diabetes, increasing quality of life and life expectancy, but it could also generate $10 trillion in lifetime net social value.13

R&D PROGRESS

Competition may also help drive down costs. While significant progress has been made with the current GLP-1 AOMs, the race is on to find the next blockbuster. Current GLP-1 drugs are forecasted to surpass $158 billion in sales by 2032.14 In conjunction with and beyond GLP-1s, biopharmaceutical manufacturers are investing in and targeting the current challenges with convenience (i.e. oral formulation instead of injectables), tolerability (ex: GI distress), and effects on body composition, such as lean mass loss. Towards the end of 2024, there were more than 700 active trials and studies on obesity and weight loss in the U.S. and more than 120 weight loss agents being developed by more than 60 companies.15

Strategic deals, including licensing, partnering, co-development, and acquisitions, have ramped up significantly over the past year, with the number of strategic deals in 2024 in the obesity space matching those of the previous three years combined. Tellingly, 72% of those deals were around products still in the discovery and pre-clinical stages.5

Some companies are creating wrap-around care services or partnering with telehealth or digital health providers to differentiate themselves, to improve weight loss treatment effectiveness and maintenance, and to reduce access barriers. In January 2024, Eli Lilly launched LillyDirect to offer Zepound through direct-to-consumer services and partnerships, including collaborations with wellness and telehealth companies, such as Ro and Form Health and care providers like Knownwell. Allurion, which has a proprietary gastric balloon, offers programmatic approach that includes nutritional support and digital tools to monitor progress.

FUNDING Q&A

In 2024, Venture Capitalists invested more than $1.8 billion into private companies in this space.5 As investments heat up and more companies focus on early obesity R&D, we asked BMO Capital Market's Evan Seigerman to share some insights into what investors are looking for in the next generation of weight-loss drugs.

Evan is BMO's Managing Director, Senior Biotechnology & Pharmaceutical Equity Research Analyst.

What do you want to see from early-stage development companies as they look to raise capital for new obesity treatments?

We like to see differentiation on areas such as mechanism of action (vs. what we have now) — as me-too single agonist GLP1 therapeutics are not going to be competitive. One or two small molecule GLP1s will be successful, we do not need 30.

We’re interested in novel mechanisms that solve for limitations with currently available therapies, such as tolerability, quality of weight loss, durability of weight loss, and so on.

We also want to see clean clinical data (no off-target toxicities), with improved tolerability and quality of weight loss.

What should we expect for M&A activity in the obesity treatment market?

While we still believe that the U.S. remains the center of Biotech innovation, we’ve seen a recent uptick in licensing deals from China, including AstraZeneca/ Eccogene, Merck/Hansoh, and Novo Nordisk/United Labs.

Time will tell whether these investments pay off, but to my previous point, differentiation vs leaders in the space is important.

We could see other large players like Pfizer potentially do a deal in obesity if they decide not to move their oral GLP-1 asset Danuglipron forward.

Industry’s interest in the space remains high, but again differentiation is likely to drive deal activity.

What are the risk factors to watch for that might hinder growth in the obesity drug market?

The number one concern that I am focused on is expanding patient access.

Approval of secondary indications like Obstructive Sleep Apnea (OSA) could help drive broader coverage. However, policy changes, such as passage of TROA (Treat to Reduce Obesity Act, which would open up broad Medicare coverage) would make the largest difference here.

Any obesity market predictions for 2025 that you would like to share?

2025 is going to be all about oral small molecules (data for Orforglipron expected by mid-year), next generation targets, like amylin, and growing patient access with innovative approaches, like direct-to-consumer (DTC) programs, for example Lilly’s collaboration with Ro Health.